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Excess of ideas to curb premiums

Over the last few years, many private medical insurers have been looking at ways of keeping down premiums. Soaring costs, coupled with the removal of tax relief on premiums for the over-60s, have driven many people away.

Ideas to restrict increases in premiums have included no-claims discounts and fixed-rate plans while add-on options have been suggested to provide greater value for money.

The latest initiative is the introduction of high levels of excess. Under standard PMI policies, providers impose a small excess which can range from between £50 to £250. But a new breed of p
lan offered by companies such as WPA, Norwich Union and Standard Life Healthcare aims to keep the cost of premiums lower by offering higher excesses of between £1,000 and £5,000.

The cost of medical treatment can be expensive, with a hip replacement starting at about £7,500 and major cardiac surgery costing around £14,500.

The main disadvantage of a high-excess plan is that the policyholder must have the funds available to pay the excess if it is necessary to make a claim for hospital treatment. When it comes to straightforward treatment such as a consultation or an X-ray, the policyholder can either pay the fee or wait to have the treatment on the NHS, which could take weeks.

Standard Life Healthcare PR manager Gillian Gibbons points out that, if the condition is not too serious, waiting for NHS treatment could be an option but there are long waiting lists for more serious treatments such as cancer and heart surgery.

“By having a plan with a high excess, customers have peace of mind. These plans provide more flexibility to decide how healthcare should be carried out,” she says.

Many people think paying PMI premiums is a waste of money unless they make claims on a regular basis. But the principle of insurance is that not everybody will get back what they paid in.

By opting for a high-excess plan, premiums are lower than for a fully comprehensive option. With some basic financial planning, the money saved each month on premiums can be invested with the aim of building up a fund to pay the excess in the event of a claim.

Saving and insuring for healthcare only really works when all parts of the process are considered together. The advent of cash Isas makes the choice of where to invest the surplus more attractive. For longer-term investments, unit and investment trusts may also prove popular.

WPA communications director David Ashdown suggests the savings made on the premiums could soon be worth more than the excess on the policy.

He says: “One of the messages we have to get across is the saving that can be made on the premiums. If people put aside the saving that they can make each year, which could amount to between £700 and £800 a year, it will only take two years to cover an excess of £1,500.”

Ashdown feels the introduction of high-excess plans will have a knock-on effect that will be beneficial to insurers.

He says: “We have found that policies with high excesses have brought back healthy people who are less likely to make claims. What the health insurance industry needs is more healthy people rather than sick people who will need to make claims. When premiums are increased, it tends to be healthy people who give up on policies.”

Ashdown believes that an increasing number of providers are considering the high-excess option.

But not all healthcare experts are keen on high-excess plans. George Connelly, principal of independent adviser Health Care Matters, says: “I admire the innovation but few clients have expressed an interest. If somebody has an excess of, say, £2,500, he or she will have to be in hospital for a couple of days before they can claim.”

However, Gibbons believes high-excess policies will have a different target market from the more traditional plans. “These plans will be suitable for people who have investments or borrowing power but who want to cut down on their monthly outgoings,” she says.

Despite the relatively short time since this type of product has been available, providers generally feel they have become popular. Ashdown says: “Considering the problems experienced by the health service recently, the launch of these products has been timely.”

There is a thought that high-excess plans will become more popular because of the flexibility coupled with the reduced premiums. They will make people take an interest in the treatment that they require and may make people stop and think about claiming on their policies.

This can only help keep down costs and will continue to give the PMI industry the chance to keep developing new ideas.

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